Marc Binda
Chief Financial Officer andTreasurer at Alexandria Real Estate Equities
Thank you, Hallie. This is Marc Binda here. Hello, and good afternoon, everyone. Congratulations to our entire team for outstanding execution this past year in a very challenging macroeconomic environment. I'll start with our solid financial results.
Total revenues and NOI for 2023 were up 11.5% and 12.2%, respectively, over 22%, primarily driven by solid same-property performance and record high development and redevelopment projects placed into service in 2023 with an incremental annual NOI of $265 million.
FFO per share diluted as adjusted was $897, up a solid 6.5% over 2022. We're very proud to report solid operating results for the year, driven by disciplined execution of our mega campus strategy. Our tenants continue to appreciate our brand collaborative mega campuses and our operational excellence by our team.
We have high-quality cash flows with 52% of our annual rental revenue as of 4Q 2023 from investment-grade and publicly traded large-cap tenants, up 3% from the prior quarter. And we have one of the highest quality client rosters in the REIT industry.
75% of our annual rental revenue comes from our collaborative mega campuses, collections remained very high at 99.9%, adjusted EBITDA margins remained strong at 69% and 96% of our leases contain annual rent escalations approximating 3%.
Now, solid rental rate growth and leasing volume drove same-property NOI growth in 2023, up 3.4% and 4.6% on a cash basis. These results were in line with our previous guidance and very solid results, especially considering the macro environment.
As expected, our Fourth Quarter same-property results took some pressure due to some temporary vacancy and four properties spread across Boston, San Francisco and San Diego, comprising about 330,000 square feet that is 64% leased or negotiating.
We expect same property results to accelerate in the second half of 2024, driven by anticipated solid rental rate growth, occupancy growth in the second half of the year, coupled with the four properties I just mentioned, as well as contractual rent increases and the burn-off of contractual free rent from executed leases.
We expect solid same property growth for 2024 consistent with what we provided at our Investor Day in December, up 1.5% and 4% on a cash basis at the mid point of our guidance range.
Leasing volume in the fourth quarter was solid at 890,000 square feet for the quarter and 4.3 million for the year, which is in line with our general historical average from 2013 to 2020.
We continue to benefit from our long-standing tenant relationships and brand loyalty with 76% of our leasing completed in 2023 coming from existing tenant relationships. Rental rate growth for lease renewals and releasing space in 2023 was very strong at 29.4% and 15.8% on a cash basis.
These are very solid results and are the third highest annual amounts, compared to the 10 years preceding the rocket ship years of 2021 and 2022. 4Q 2023 rental rate growth for lease renewals and releasing of space was 9.2% and 5.5% on a cash basis. Due to the incredible execution by our team, we were able to backfill the roughly 100,000 square foot former Atreca space in San Carlos with a very exciting clinical-stage biotech company called Cargo Therapeutics during the quarter at solid economics, including no TIs and limited downtime.
The starting cash rent on that deal was slightly negative at about negative 4% compared to the most recent in-place rents from that was three years into a 10-year lease. Given the quarterly results are driven by a relatively small amount of square feet, the relatively flat results from this transaction had a meaningful impact on the quarterly rental rate increases. Excluding this transaction, rental rate increases for the quarter would have been 21.4% and 9.7% on a cash basis. We expect solid rental rate growth on lease renewals and releasing of space for 2024 at a midpoint of 15% and 9% on a cash basis with some variation from quarter-to-quarter.
The overall mark-to-market for cash rental rates related to our in-place leases for the entire asset base remains solid at 14%. Our non-revenue-enhancing expenditures, including TIs and leasing commissions on second generation space have averaged 15% of NOI over the last five years and remained low during 2023 and in the 12% to 13% range.
Year-end occupancy was solid at 94.6%, up 90 basis points from the prior quarter and the primary driver of the increase from the third quarter was space that was delivered in San Diego. The midpoint of our guidance range for occupancy for year-end 2024 is 95.1%, so we do expect some modest growth in occupancy through the year as well as growth in same-property occupancy in the second half of the year.
Transitioning to the balance sheet. We have one of the strongest balance sheets in the company's history as of 4Q 2023. Our corporate credit rankings link in the top 10% of all publicly traded US public REITs. We met our goal for year-end leverage of 5.1 times for net debt to adjusted EBITDA on a quarterly annualized basis. And we ended the year with tremendous liquidity of $5.8 billion fixed rate debt comprising 98.1% of our total debt, a weighted average remaining term of debt of 12.8 years and no debt maturities until 2025. Only 20% of our debt matures in the next five years and 29% of our debt matures in 2049 and beyond with an attractive rate of 3.91%.
We continue to focus on the enhancement of our overall asset base and the recycling of capital through outright dispositions of assets that are not integral to our mega campus strategy. We recognize that these types of assets will likely have a higher cost of capital than our core assets located in our mega campuses, but this will allow us to recycle these proceeds into our highly leased development and redevelopment pipeline and to continue to enhance our mega campus strategy.
For 2023, we completed dispositions and partial interest sales of $1.3 billion, including $439 million of dispositions completed in the fourth quarter. Importantly, during 2023, we did not issue any new common equity other than the settlement of our outstanding forward equity contracts from 2022, which raised $104 million and we're very proud of our strong execution capability. The team is laser focused on the execution of our capital plan headed into 2024, and we have pending dispositions subject to letters of intent or sales agreements for another $142 million that we expect to close in 2024. Based upon our current outlook, we expect our asset recycling program to be more heavily weighted towards outright dispositions of non-core assets rather than partial interest sales in 2024.
In the fourth quarter, we recognized impairments aggregating $271.9 million, which included two significant items. First was the $94.8 million charge related to the sale of 380 and 420 East Street located in the Seaport, which had been announced last quarter and subsequently closed during the fourth quarter. And then second, as Joel mentioned, $93.5 million of a charge related to an office property located in Manhattan, which was classified as held for sale this quarter.
The New York project Joel mentioned was acquired in 2018 as a covered land project with a leaseback and in-place cash flows. But in the fourth quarter, we elected not to proceed with the conversion project and this is now under contract and expected to be sold next year.
Cash flows from operating activities after dividends for 2024 is expected to be very strong at $450 million at the midpoint of our guidance, and we'll continue to support growth in our annual common stock dividends per share. We had a low conservative FFO payout ratio of 56% for the quarter with a 6% average per share dividend increase over the last five years and at this pace of retained cash flows over the next three years, Cash flows from operating activities after dividends should generate close to $1.4 billion of efficient capital for reinvestment.
Now I'll turn to a couple of important highlights on the external growth side. 2023 and 4Q 2023 were both record years in terms of the amount of incremental annual NOI onboarded with $265 million and $145 million, respectively. Importantly, about 80% of the annual rental revenue delivered in the fourth quarter was the investment-grade or publicly traded large cap tenants, including Moderna and Eli Lilly. With a very large amount of deliveries around mid-quarter on average in the fourth quarter, we expect a significant earnings benefit headed into 1Q 2024.
We expect tremendous growth in incremental annual net operating income on a cash basis of $114 million upon the burn-off of initial free rent related to recently delivered projects with a weighted average burn-off period of about 10 months. And as Peter highlighted, we have 5.7 million rentable square feet of projects that are 60% leased or negotiating and projects that will generate $495 million of incremental annual net operating income over the next four years.
A key item to highlight here is that we had strong leasing activity in the pipeline with over 500,000 square feet either leased or added to the negotiating bucket through signed LOIs during the quarter, which was the most we've had since 2Q 2022. Next, on capitalized interest, our outlook for capitalized interest for 2024 is consistent with our previous guidance.
And as a reminder, we expect capitalized interest for 2024 to be impacted by the following: First, and overall decline in average real estate basis subject to capitalization compared to 2023, which was driven in part by the large basis placed into service in the fourth quarter of 2023, and second, we expect an offsetting increase caused by an uptick in our weighted average interest rate on borrowings used in the calculation of capitalization of interest in 2024 compared to 2023.
I'll turn next to venture investments. Realized gains from venture investments included in FFO per share as adjusted for the quarter was $12.3 million, which was below our recent run rate, in part due to a large realized loss on one of our investments that occurred late in the quarter.
FFO per share as adjusted over the last three years has included on average, $96 million of realized gains in each year from venture investments or approximately $24 million per quarter.
Our outlook for quarterly realized gains from venture investments in 2024 and is $95 million to $125 million, which is modestly above our three-year annual average of $96 million. Gross unrealized gains in our venture investments as of the end of the quarter were $320 million on a cost basis of just under $1.2 billion.
Turning to guidance. We have reaffirmed our solid guidance for 2024 that was initially provided in connection with our Annual Investor Day on November 29th, with a few minor changes as outlined in our supplemental package on page four.
Our range for guidance for EPS is $3.49 to $3.69 and our range for FFO per share diluted as adjusted is $9.37 to $9.57, with no change in the midpoint of $9.47, which represents a solid 5.6% growth in FFO per share, following excellent growth last year of 6.5%.
Lastly, our ATM program expired in early January of this year upon the expiration of our shelf registration, so we do expect to file a new program here in the near future.
With that, let me turn it over to Joel.
